Spot trades are transactions involving the buying or selling of financial instruments, commodities or foreign currencies for immediate delivery in the market. These transactions are done at the spot price, which is the current market price for the particular asset. The spot price of an asset is usually quoted in terms of the current bid and ask rates in the market.

When comparing to futures or forward prices, spot prices generally reflect the cost of the asset at the present time rather than a future date. Spot trades are usually settled two days after the transaction date (T+2). Spot trades can be conducted on a regulated exchange, such as the New York Stock Exchange and over-the-counter (OTC) markets, where buyers and sellers agree on a purchase price and transact privately.

Spot trades are often used by investors to take advantage of market volatility and movements. In foreign exchanges, spot trades are popular because they offer liquidity and the ability to buy and sell currencies instantly. The flexibility and convenience of spot trades give investors a greater range of options for timing and pricing when executing trades.

Spot trades are subject to market risks that can affect both the parties involved in the transaction, as well as other market participants. With spot trades, there is always the possibility of being exposed to price uncertainty due to fluctuations in the underlying asset values. Additionally, credit risk can also arise when one of the parties is unable to fulfill its contractual obligations (i.e., fails to deliver the asset on time).

Overall, spot trades offer investors the opportunity to quickly capitalize on current market conditions while potentially limiting the impact of a major market shift. However, the inherent risk and volatility of the markets must be kept in mind when engaging in spot trades. Investing in spot markets can be beneficial, but it is also important for investors to understand the risks and rewards associated with these transactions.